Duty on wheat imports is a retrograde step

Let the good grain be distributed under PDS to avoid political complications

The food ministry’s move to impose 10% import duty on good quality wheat for enabling sale of the government’s poor quality wheat procured this year is laughable, to say the least, and irrational any way. Apparently, the view is that unless market buys lower quality wheat at the official price and policy, the government will block import of good wheat that is being currently imported at a lower price by the trade in southern India.

The greatest single ambiguity is that if Maggi noodles could be banned for non-compliance with specifications, why the sale of low quality wheat is being promoted by virtually denying acquisition of superior cereal from abroad (currently Australia) at cheaper prices by millers/traders, especially from southern India. The huge difference in wholesale prices prevailing in the south and the rest of India justifies imports on commercial prudence.

Normally, south Indian millers blend superior quality wheat with low quality grains as “filler”, so that customised flour (atta) for maida/rava/suji or bread/bakery making could be produced. The superior variety has suffered severe shortfall this year due to unseasonal rains in Madhya Pradesh. If the government decides to clamp down on production of such customised flour, low quality wheat that could be used as “filler” cannot also be easily consumed.

Thus, the government itself disables consumption of its wheat.

By official admission, about 30% of the 27 million tonnes (or 8 million tonnes) bought this year (2015-16) by the government is of poor quality. It remains unclear if most of grains procured “under relaxed norms (URN)” is classified as “poor quality” or URN wheat is somewhat superior to the “poor quality”. Does poor quality mean inedible for human consumption? Of the 4 million tonnes offered under OMSS till May 2015, only 5,000 metric tonnes could be sold. Is the questionable quality the prime reason for tardy disposal?

A Times of India report of January 29, quoting FCI officials, mentions that 90% of the 27 million tonnes of wheat procured this year URN—24 million tonnes—equivalent to the annual production of Australia, carries higher percentages of shrivelled, broken grains and lacks lustre. Such wheat is suitable for making chapatis (unleavened flat bread) but it suffers from shorter shelf life and needs to be consumed in less than a year.

To clear the confusion, the government may come out with facts and figures of availability of (1) good quality, (2) URN, and (3) inedible grains for human use. Any alternative course of action for their evacuation can be evaluated and planned thereafter.

The government has not notified any differential between good and lower quality grains. There is no pick-and-choose option. It is a matter of common sense that a commodity with varying specifications cannot be sold at the same price when the authorities themselves have determined a large tonnage as “of lower quality”.

Wheat of URN or lower parameters at OMSS price of Rs 1,550 per quintal plus freight and incidentals costs around Rs 1,900 per quintal in south India, versus imported grain at Rs 1,850 per quintal. Though these two qualities are not mutually comparable, still the value of better type of imported produce is cheaper. Since the WPI wheat inflation is down to about 3%, the imposition of 10% implies that the government is spurring inflation domestically, simply because holdings stuck with FCI or state governments are to be bailed out due to lack of ideas for their disposal.

Indian wheat consumption sans export is about 85 million tonnes per annum. The import of half to one million tonnes in southern India is not likely to accelerate disposal process of FCI or the government of about 20 million tonnes by adding 10% duty component. The government may also have to weigh in the political consequences of distributing “poor quality” wheat under PDS. Is there any rationalisation for penalising consumers because producers were protected? Should PDS consumers become guinea pigs for using substandard wheat, simply because it is subsidised?

For the open market sale, the government has to reduce the price for saleability in the market. That can be determined by open auction without any pre-fixation to OMSS of Rs 1,550 per quintal. The rate of disposal is directly dependent on the minimum price acceptable in open market for lower/poor quality grains.

Lustre loss wheat was classified of lower category in 2002-03 and was offered as “feed wheat”, for which there is abundant demand in India and abroad. About 4 million tonnes was exported at discounted values of 20-25% from the normal values. The authorities should have the courage of declaring suboptimal quality as feed wheat. For example, if OMSS of such wheat is discovered at, say, Rs 1,100 per quintal, the rate of disappearance will be phenomenal.

The problem in the bureaucratic set-up is no official agency is prepared to discount the price as the loss will have to be booked with reasonable justifications. But burdening 10% duty on wheat import may mean some action on paper, even though it may defy the objective.

The government must come out transparently with various qualities and quantities it has stocked, declare poor quality as feed wheat, apply calibrated discount to lower quality wheat, and then sell locally. If still the consumption does not pick up, it can export 5-6 million tonnes as feed wheat at global market price. Let the good grain be distributed under PDS to avoid political complications and shun the levy of import duty.

The author is a grains trade expert

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Jul 13, 2015 at 5:02 pm

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